This week on Hull on Estates, Ian Hull and Lisa Haseley discuss the Mutual Wills Doctrine. Link to Paul Trudelle’s paper: Mutual Wills A Review http://bit.ly/2fs2l5P
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The composition of assets held by a trust can be complex. In situations wherein a significant amount of wealth is held in a trust, the trust can often be composed of various corporate entities (whether numbered companies or otherwise), which in turn can often hold interests in other corporations. The administration of such corporate entities can have wide ranging implications, with the trusts perhaps only owning a portion of any shares in the overall structure. But what right, if any, does a beneficiary of the trust have to view the backing corporate documentation for such corporations? Does a beneficiary of a trust have an automatic right to view all backing corporate documentation, or do the trustees have the authority to refuse the request in certain circumstances?
Although there is little jurisprudence in Canada on the subject, the English case of Butt v. Kelson,  Ch. 197, has been cited as a leading authority. In Butt v. Kelson, Justice Romer provides the following commentary in confirming that beneficiaries of a trust have certain rights to compel the release of backing corporate documentation:
“What I think is the true way of looking at the matter is that which was presented to this court by Sir Lynn Ungoed-Thomas, that is that the beneficiaries are entitled to be treated as though they were the registered shareholders in respect of trust shares, with the advantages and disadvantages (for example, restrictions imposed by the articles) which are involved in that position, and that they can compel the trustee directors if necessary to use their votes as the beneficiaries, or as the court, if the beneficiaries themselves are not in agreement, think proper, even to the extent of altering the articles of association if the trust shares carry votes sufficient for that purpose… I would propose, accordingly, that the declaration which has been made be discharged, but that there should be inserted into the order liberty to [the beneficiary] to apply in these proceedings in relation to any document which he may hereafter desire to see and of which [the trustees] decline to give him inspection.“ [emphasis added]
Justice Romer’s commentary suggests that at minimum a beneficiary of a trust is entitled to the same disclosure rights regarding any corporation owned by the trust as if the beneficiary were the shareholder of the shares which the trust owns. Whether such disclosure rights go beyond that of a shareholder, and whether the beneficiary can compel the release of any documentation available only to the directors, will need to be determined on a case by case basis, with Justice Romer suggesting that it may even be possible in circumstances where the trust is the majority shareholder for the beneficiaries to compel the trustees (as shareholders) to alter the articles of incorporation to provide for the release of certain documentation which otherwise may not have been available to them. Whether the beneficiaries would be entitled to receive such documentation would need to be determined by the court on a case by case basis.
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Being a trustee of a trust can be perilous, with trustees facing potential personal liability should they make the wrong decision. As a safeguard against such potential liability, when issues arise in the administration of a trust, trustees may consider commencing an Application for the opinion, advice or direction of the court in accordance with the Trustee Act. Section 60(1) of the Trustee Act provides:
“A trustee, guardian or personal representative may, without the institution of an action, apply to the Superior Court of Justice for the opinion, advice or direction of the court on any question respecting the management or administration of the trust property or the asserts of a ward or a testator or intestate.”
Should the court accept such an Application, and provide the trustees with directions regarding the issue, the trustees are insulated from liability as it relates to the beneficiaries regarding such an issue so long as they act in accordance with the directions of the court. This is made clear by section 60(2) of the Trustee Act, which provides:
“The trustee, guardian or personal representative acting upon the opinion, advice or direction given shall be deemed, so far as regards that person’s responsibility, to have discharged that person’s duty as such trustee, guardian or personal representative, in the subject-matter of the application, unless that person has been guilty of some fraud, wilful concealment or misrepresentation in obtaining such opinion, advice or direction.”
Notably, while section 60(1) of the Trustee Act allows trustees to direct a specific issue for the “opinion, advice or direction” of the court, the court has been clear that on such an Application the court will not exercise discretionary decisions on behalf of the trustees. Such a point was recently made clear by Justice Broad in Keller v. Wilson, where at paragraph 25 the court states:
“The fact that trustees are expressly permitted by the Trustee Act to apply for the opinion advice or direction of the Court does not authorize the court to exercise discretionary powers on behalf of trustees, thereby shifting responsibility from the trustees, on whom the settlor of the trust placed such responsibility, to the court. This is so even though subsection 60(2) of the Trustee Act provides a specific indemnification to trustees who act upon the opinion, advice or direction of the court.” [emphasis added]
Cases like Keller v. Wilson make it clear that on an Application for opinion, advice, or direction, the court will not exercise discretionary decisions on behalf of the trustee, with their jurisdiction to provide directions being limited to questions of a “legal” nature relating to the discharging of the trustees’ duties. To this effect, the court’s direction can be thought of the court advising whether the trustee “can” not “should” do a particular action. While the court will advise whether the trustee has the legal authority to do a particular action, they will not make such a discretionary decision on behalf of the trustee.
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I recently came across an interesting New York Estate Planning Blog, which attempts to address the valuation of intangible property in relation to the payment of estate administration tax.
Although it is rather straightforward that estate trustees are required to value assets of a deceased person, and pay taxes on those assets, the issue posed by the blog is, whether intangible assets are included in the payment of estate administration taxes, and if so, how a valuation is reached.
In Ontario, intangible property is deemed to be owned by the deceased at the time of death, and is therefore included in the calculation of estate administration tax. This has been made clear by the Ministry of Finance.
Valuing intangible property appears to be less clear though. Apparently, in the USA, disputes have arisen between estate trustees and the Internal Revenue Service (IRS), over the valuation of intangible assets, and to the amount of estate administration tax paid.
This dispute seems to be highlighted by the valuation of publicity rights. For example, the estate trustees of Michael Jackson’s estate have valued his estate at $2,105.00, whereas the IRS has attributed a value of $1.125 billion – therefore alleging that an additional $702 million is owned in estate administration tax (based on taxes and penalties). According to the LA Times, most of the dispute is over the price attributable to the King of Pop’s image, and his interest in a Trust which includes the ownership of Beatles songs, including Yesterday, Get Back, and Sgt. Pepper’s Lonely Hearts Club Band.
While most Ontario residents will not be burdened with valuing publicity rights, it is nonetheless important to consider the inclusion of assets, including intangible assets, in calculating estate administration tax, and that a proper valuation is obtained. Otherwise, in reviewing the payment of estate administration tax paid, the CRA may not ‘Let it Be’.
This week on Hull on Estates, Natalia Angelini and Noah Weisberg discuss the relationship between estate freezes and trusts as considered in Donovan Waters’ article located in the Estates and Trusts Pension Journal.
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The nature of a will is that it is revocable, meaning that testators can change their mind, cause their will to no longer be in effect, and make a new will at any time. However, just as there are requirements for executing a will, there are specific rules in place that govern how a will may be revoked.
In Ontario, a will can only be revoked in certain ways. Under section 15 of the Succession Law Reform Act, RSO 1990, c S.26 (SLRA), a will or part of a will is revoked only by (a) marriage; (b) another will; (c) a writing declaring an intention to revoke, and made in accordance with the requirements of making a will; or (d) burning, tearing or otherwise destroying the will by the testator with the intention of revoking it. Accordingly, testators cannot simply decide that they no longer wish their will to govern their estate without any further action. They must take the step of executing a later will, destroying the will, or putting it in writing in the correct format that they wish to revoke. Many people are not aware that marriage revokes a will, so clients should always be advised of this in order to prevent any possible inadvertent revocation.
However, revocation of a will may not be the final word. Revival and republication exist to bring a revoked will back into effect. Revival is the restoring of a revoked will. Pursuant to section 19 of the SLRA, a revoked will can only be revived by a will or codicil that shows intention to give effect to the will or part that was revoked, or by re-execution of the revoked will with the required formalities, if any. The intention to revive a revoked will must appear on the face of the instrument purporting to revive it, and simply describing a later codicil as being a codicil to an existing will is not sufficient. If a will has been destroyed, it can only be revived by re-execution of a draft or copy or by a codicil referring to a draft or copy.
As opposed to revival, which restores a revoked will, republication, on the other hand, confirms a valid will. Republication occurs when a testator re-executes a will for the express purpose of republishing it or by making a codicil to the will. Essentially, republishing a will shifts the date of the will, so it is as if the testator had made a new will, with the exact same dispositions, at a later date. Republication must be in the form of a codicil to an existing will, or a document that makes specific reference to the will being republished as an existing testamentary document.
These may seem like simple concepts, but it is important to keep the basic rules in mind, as well as the sources of such rules, in order to properly advise clients and pre-empt easily avoidable issues as much as possible.
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For business owners, part of a comprehensive estate plan should include a succession plan for your business. It is important to start planning the succession of your business early and revisit it from time to time. This should not be a single, discrete task, but an ongoing process over time. The Canada Business Network, a government organization providing resources and information to businesses, suggests that the process of retiring or exiting from your business could take up to 5 years. Furthermore, in case of unexpected illness or death, you do not want to be left without a plan.
Your succession plan should include consideration of matters such as the vision for your business, the selection of a successor and a plan for their training, and the timeline for your transition out of the business. It could also include a plan with respect to how you might remain involved following your transition, and in what capacity.
You will need to consider whether you want to transfer the business to another person, or sell it, either to a partner, third party buyer, or even an employee. In a family business, you may wish to transfer the business to family members who have been involved in the business. This would ideally be implemented much earlier than your planned exit to allow family members to work in the business, learn it over time, and be prepared to take over when the time comes. If there are multiple family members involved, it may be difficult to decide who you wish to take over the responsibility, and may be even more difficult to communicate to those not selected. Regardless of how difficult this conversation may be, it should nonetheless be discussed sufficiently early to attempt as smooth a transition as possible.
It is also important to consider estate planning strategies specifically relating to the transition of your business. Some considerations could include how to transfer your shares to the successor in a way that minimizes tax, and whether you will be able to make use of the capital gains exemption from dispositions of Qualified Small Business Corporation shares. You may want to consider implementing an estate freeze by exchanging common shares for preferred shares, and issuing new common shares to your successors in order to freeze the value of your shares in the business. The value of future growth will then accrue to the common shares held by the successors. In this regard, and with respect to your entire succession plan, it would be wise to work with professional advisors to create and implement a tax-efficient method of transitioning your business that will work best for you.
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According to the News Release, the Finding Your Way program is a “multicultural safety campaign that helps people with dementia stay safe and active, while helping to prevent the risk of wandering and going missing.” It notes that the program’s training services will be enhanced this year to include both first-responders as well as supportive housing and retirement home staff.
The Finding Your Way program is specifically focused on addressing and preventing individuals with dementia from going missing and states that 60% of people with dementia related memory problems become lost at some point. Their website provides some resources, including checklists for What to do when a person with dementia goes missing and What to do when reuniting after a missing incident. They also provide some suggestions of ways to reduce the risks associated with dementia. The first suggestion is to stay safe at home, by considering the best living arrangements for someone with dementia and ensuring that individuals with dementia maintain their health. The second suggestion is to be a part of the community while reducing the risk of becoming lost by carrying identification at all times, ensuring that someone knows where the senior with dementia is going, and dressing appropriately for the weather. The third suggestion encourages getting around in the community by urging seniors with dementia to get to know their neighbours and professionals in the neighbourhood (i.e. pharmacists, grocers, bankers), as well as participating in social activities.
The Alzheimer Society of Ontario’s website provides some “Dementia numbers in Canada” stating that in 2011, 14.9 per cent of Canadians 65 and older were living with Alzheimer’s disease and other dementias, with the figure expecting to increase. It also notes that one in five Canadians aged 45 and older provides some form of care to seniors living with long-term health problems. In 2011, family caregivers spent over 444 million unpaid hours looking after someone with cognitive impairment, including dementia. It is clear that dementia affects a great deal of people in Canada and in Ontario.
The Minister Responsible for Seniors Affairs stated in the News Release that “[o]ur communities have an important role to play in helping keep people with dementia safe, and this funding will help the Alzheimer Society of Ontario to deliver these resources to even more Ontarians.”
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A couple of months ago, I blogged about a letter from the Department of Finance in which it addressed concerns regarding amendments to the Income Tax Act (the “ITA”) that have come into force as of January 1, 2016. The stated purpose of the letter was to confirm the Department of Finance’s understanding of the issues raised and to describe an option for responding to these issues. There was no promise that the option would be pursued or that any action would be taken.
However, on January 15, 2016, the Department of Finance released draft legislative proposals that would modify the income tax treatment of certain trusts and their beneficiaries. The legislative proposals, along with explanatory notes, can be found here.
Currently paragraph 104(13.4)(a) of the ITA provides that upon the death of a beneficiary of a spousal trust, the trust’s taxation year will be deemed to come to an end on the date of the individual’s death. Subsequently, according to paragraph 104(13.4)(b), all of the trust’s income for the year is deemed to have become payable to the lifetime beneficiary during the year, and thus must be included in computing the beneficiary’s income for their final taxation year. This has been raised as an issue due to paragraph 160(1.4) which makes the trust and the beneficiary jointly and severally liable for the portion of the beneficiary’s income tax payable as a result of including the income from the trust. As such, it is possible that the beneficiary could be responsible for the full income tax liability, to the benefit of the trust and the trust’s beneficiaries.
According to the draft legislation, paragraph 104(13.4)(b) is to be amended and 104(13.4)(b.1) is to be added, such that (b) does not apply to a trust unless all the requirements are met and the trust and the beneficiary’s graduated rate estate jointly elect that (b) apply. It would, therefore, be up to the trust and to the estate of the beneficiary to determine whether they wish the trust’s income to be included in the income of the beneficiary for their final taxation year.
There was also an issue raised with respect to the stranding of charitable tax credits. This situation could arise if a trust were to make a charitable donation after the beneficiary’s death. As the trust’s income for the year has to be included in the beneficiary’s income, consequently, the trust would have no income against which to deduct tax credits. Based on the draft legislation, as long as the beneficiary and the trust do not jointly elect for 104(13.4)(b) to apply, the trust’s income will be included in the trust’s tax return, and any charitable donation tax credits should be able to be deducted from that income.
The press release issued with the draft legislation stated that the Department of Finance had released the draft legislative proposals for consultation and welcomed interested parties to provide comments by February 15, 2016.
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The Honourable Susan E. Greer has been involved in the world of estate law for many years, as both a lawyer and as a recently retired Superior Court Justice. During that time, and particularly during her 23 years as a Superior Court Justice, she has observed a number of changes as she observes in this article for Advocate Daily.
Some of the changes discussed by The Honourable Ms. Greer are relevant to the practice of law generally. In particular, she mentions civility, and the fact that counsel have become less courteous over time, including in interactions with court staff, each other, and witnesses. She also refers to the increasing use of emails as exhibits to affidavits. In this regard, of note is the concern that many emails are “sent in haste, without careful consideration as to how they read or how they could be misinterpreted” as opposed to the thought that usually goes into the drafting of letters. These comments are applicable to lawyers generally, not solely the estates bar, and are important points to consider.
Specifically with respect to estate law, The Honourable Ms. Greer notes that there have been changes in several areas, including sibling rivalry increasingly being brought to the courts, and increasingly heavy scrutiny of jointly held assets. One particularly interesting development discussed in the article is the increase in will challenges commenced by children prior to the death of their parent. As noted by The Honourable Ms. Greer, this is not an issue unique to Ontario or Canada, citing a French case in which the daughter of Liliane Bettencourt, heir to the L’Oreal cosmetics company, successfully challenged the validity of her mother’s will, while her mother was still alive.
Relevant to many of the changes that have been seen in estates, according to The Honourable Ms. Greer, is the issue that the “greed factor has become more pronounced, causing bitter divisions in families that seem impossible to heal.” That being said, given that courts have moved away from awarding all costs of litigation to be paid from the estate, the possibility of being responsible for one’s own costs, as well as the costs of other parties, may serve as a disincentive for potential litigants with more frivolous claims that may be driven by greed.
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